Sailing Landlords

[belizesailor]

Originally Posted by Fence Man

I had considered making a few of them horse friendly, and we are in the agricultural fence business....

I hope you are wrong about the economy, but fear you are right. Time to start stacking cash!

Yeah, nothing wrong with exploring plans for horse friendly rental property (or any other kind) but I would hold off on any new investments right now (I am).

[fschaefer4]

Let me know if this is too much thread drift, but I like the discussion here, so I'll keep it going.

I have a single family unit in Austin that has appreciated a LOT. It's no longer my homestead, so if I sell it to buy a boat and finance a number of years sailing, I'll pay about $150K in capital gains.

Does it make sense and is it legal to make it my homestead even though I'm leasing it out so that when 2 years is up I can sell and avoid the capital gains tax?

FWIW, I'm planning on starting traveling and learning by crewing within a year, so I won't really have a fixed home address. Like so many people here, I'll just have to pick a place that makes the most sense. Seems like a house that I happen to rent out as I'm not stationary would make as much sense as anything else.

[dougweibel]

Here is a link to the IRS website with info on the primary residence capital gains exclusion:
https://www.irs.gov/taxtopics/tc701

The details you give have a few holes. The current top capital gains tax rate is 20% so I'll assume your gain on the house is ~$750K. You can get a $250K exclusion on the cap gain if the house is your primary residence, or a $500K exclusion if you are married filing jointly. So if single you will still pay cap gains tax on $500K or if married then on $250K. If you can claim the exclusion you can save either $50K or $100K in cap gains tax depending on your marriage status. To claim the exclusion you have to have lived in the house 2 of the 5 years prior to sale. Using the house as your mailing address while you are off cruising, or living elsewhere even if elsewhere is not a fixed location, does not qualify. Primary residence and mailing address are not the same thing.

What are you doing with the house now? Is it being rented out and producing good income? Where are you living now and what is that costing you? Do you need to sell the house in order to buy a boat? With answers to these questions it should be pretty straightforward to chart a good course. Of course having a crystal ball that will tell you what the real estate market will look like in a couple years, well that would really help. Lots of pessimists say the market will collapse, but investors in the equity markets seem to strongly disagree at present.

[Scottt]

Not Thread Drift at all...Sailing Landlords!
Real estate is solid investment for long term. Have learned if you buy an investment, make sure the return will pay for it, upkeep it, pay taxes, repair and upgrade at some point or at least maintain the shine. If you sell... trade up...sell with a specific 'self supporting' purchase in mind. To sell and use the money to support the sailing life for yourself with no other income is setting a goal for running out of funds at some point...Murphy will find a way to use even the little saving you had for emergency.

Save up now, set a goal to sail, buy the boat you can afford, work hard and smart, Keep your financial business assets in the business...or - do not sell the goose that lays even the small eggs to gratify what you desire to have right now.

More to your question...If your gains on the sale of the property is so substantial, the 150K in tax is just a cost of doing business. If you do not need the money now, yes homestead it. Make sure the untilities are in your name, you receive some mail there as a home base and corporate office (right off for home office), maintain a small portion of the home to be yours (even though you may not be there) It is still your place. Lots of exclusion possibilities from IRS .. https://www.irs.gov/publications/p52...ublink10009003

Keep it 2 years or 10 years or indefinitely... if it is bringing you an income on a regular basis and it is enough, keep it. If you need the money and the margin is great enough to maintain you for a 'time' (even after the CGTAX), sell it....BUT remember after a sale, with no investment into the next traded up asset, your funds are terminal. What ever you decide I pray you have a blessed time doing it and serve wherever you are with an unshakable joy.

Will be in Austin starting Friday AM. Might enjoy visiting with a longing fellow sailor. My SV Makai is in Anacortes Washington....kinda been off limits for the last two or three months. Leaving in June to sail the San Juans and Vancouver Island.

PM me if youd like to have coffee or any other beverage in Austin Friday.

Scott T

[Scottt]

Fair Winds!

[fschaefer4]

I'll go through it all and chart the options. I just started thinking on this, so still working through it.

I agree that selling off everything and not having any income while you're gone is not a good long term plan. With this house, I got it for a great price, did the entire remodel modestly, could make some decent bank. Obviously, holding for a lot longer and is great, but I'm fine with it buying a great boat free and clear along with a few years of sailing worry free. I plan on working as I sail so I'm not just burning money the entire time. And there's the other rental income.

I have 2 other rental properties that cashflow and a 3rd that I have lined up for when the time comes. I'm reasonably assured I would be able to get that even if I'm cruising.

As far as "homesteading" the house I want to sell, I see it like this. If I get to pocket the capital gains tax after to years, that means I've basically "earned" that money while I was traveling. If my accountant was right and it really is $150K (I have to double check that) then that's $70K a year while traveling.

BUT, viewing the $150K as the cost of doing business is also totally legit. Get the money, get the boat and live off the income from the other 2 properties.

Thanks @scott and @dougweibel for the excellent input.

@Scott, would love to get a cup of coffee. I'll pm you.

[DonaC]

Originally Posted by Fence Man

Yes, the member here. To be fair, most of my questions were asked in private, so a google search wouldn't turn up any record. It sounds like you have a strong plan. We have struggled to add any rentals to the fleet in the past year, given the strong retail market for investment properties in our area(s). We are in a bit of a unique situation, but decided to add some construction equipment to our portfolio of rentals, and while not appreciable assets, the income is much stronger. They are $50-60k machines, and are on long term rent (12 month minimum) and rent for $3-4k per month. We also keep one around for short term rent, but it goes for about double per month. We are up to 4 total, and I would really like to double that this year. Of course, it takes more legwork and a more specialized management team than a property manager, but we already have those people in our organization.

Old post I know but I’m new here and hoping you see this. Please tell me more about the equipment rental. It seems more profitable. What about maintenance and repairs? Who handles that? How and where did you get started?